The Management of Bonga Corporation Is Considering Dropping Product D74F

question 331

Multiple Choice

The management of Bonga Corporation is considering dropping product D74F. Data from the company's accounting system for this product for last year appear below: All fixed expenses of the company are fully allocated to products in the company's accounting system. Further investigation has revealed that $111,000 of the fixed manufacturing expenses and $103,000 of the fixed selling and administrative expenses are avoidable if product D74F is discontinued.What would be the financial advantage (disadvantage) from dropping product D74F?

• A) $226,000
• B) $58,000
• C) ($226,000)
• D) ($58,000)

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Definitions:

Service Companies

Businesses that provide intangible products or services to consumers or other businesses rather than manufacturing goods.

Fixed

Costs that do not change with the level of production or sales activity, such as rent, salaries and insurance.

Variable

A quantity that can change or vary, often used in mathematics and statistics to represent an element that can assume different values.

Operating Leverage

A measure of how revenue growth translates into growth in operating income, influenced by the proportion of fixed to variable costs.